i need this assignment to be completed pls help b) Calculate the total money cre

Question

i need this assignment to be completed

pls help

b) Calculate the total money creation in the economy with the help of formula.(2 Marks) Question 2: 4 mark) Consider an economy where no commercial bank holds excessive reserve and no household holds cash through open market Assume that the central bank provides $100 million reserves to one commercial bank operation Calculate the total amount of deposit that will be cr commercial banks? ( mark) a) eated if the required reserve ratio is 10% for all Suppose now that currency in circulation is S600 bilion, the amount of checkable deposits is $1000 billion, and excess reserves are $15 biln Calculate: b) The money supply. (1 mark) c) The currency deposit ratio. (1 mark) d) The excess reserve ratio. (1 mark)

Explanation / Answer

Question 2

(a)

It has been provided that central bank has provided a commercial bank with reserves of $100 million through open market operations.

This reserves will act as excess reserves for the stated commercial bank.

So,

Excess reserves created = $100 million

Required reserve ratio = 10% or 0.10

Calculate the money multiplier -

Money multiplier = 1/Required reserve ratio = 1/0.10 = 10

Calculate the total amount of deposits created for the all commercial banks -

Total amount of deposits created = Excess reserves created * Money Multiplier = $100 million * 10 = $1,000 million

Thus,

The total amount of deposits created for all the commercial banks is $1,000 million or $1 billion.

(b)

Calculate the Money Supply -

Money Supply = Currency in circulation + Checkable deposits = $600 billion + $1,000 billion = $1,600 billion

The Money Supply is $1,600 billion.

(c)

Calculate the currency deposit ratio -

Currency deposit ratio = Currency in circulation/Checkable deposits = $600 billion/$1,000 billion = 0.6

The currency-deposit ratio is 0.6

(d)

Calculate the excess reserve ratio -

Excess reserve ratio = Excess reserves/Checkable deposits = $15 billion/$1,000 billion = 0.015

The Excess reserve ratio is 0.015

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